Strong performance, increased value, positive outlook for Aviva global

Aviva has achieved strong performance worldwide in the nine months ended on 30 September 2010.

The Company said its worldwide sales grew by 5% to £35.9 billion and long-term savings sales improved by 6% to £28.6 billion whilst General insurance and health net written premiums amounted to £7.3 billion up 4%.

Strong profitability and capital generation were reflected by Group IRR stable at 12%, and General insurance COR of 97%. Aviva was also on track to generate £1.5 billion operational capital in 2010 whilst IFRS net asset value up at 414p (30 June 2010: 394p); 424p on a pro forma basis including £275 million benefit from closure of UK final salary pension scheme

Aviva also said it has achieved sharper focus, greater depth and clear financial deliverables. They included focus on markets where it has strength and scale along with deepen positions in chosen markets.

It plans to deliver at least £1.5 billion of operational capital in 2011 and achieve a Life IRR of at least 12% with payback of 10 years or less, a General insurance COR of 97% or better in 2011 and £200 million of cost savings and £200 million of efficiency gains by end 2012.

Aviva Group Chief Executive Andrew Moss said:  “The third quarter of 2010 saw continued strong profitability and good sales growth from both our life and general insurance businesses. New business profitability has improved and we’re on track to generate a very significant £1.5 billion of capital in 2010.

“As we look to the next phase of our growth, Aviva will sharpen its geographic focus and deepen its position in its key markets through its strengths in both life and general insurance. Our UK business is an excellent example of how this strategy is delivering value for our shareholders and customers. Aviva is well-placed to become a leading insurer in our chosen markets.

“I am pleased to report that Aviva has maintained the momentum created in the first half of the year, with a strong third quarter performance. We delivered good sales growth in the first nine months of 2010, with total world-wide sales of £35.9 billion, an increase of 5% on the same period last year. Within this, long-term savings sales rose 6% to £28.6 billion and our general insurance business also performed strongly, with net written premiums increasing by 4% to £7.3 billion.”

“We have continued to focus on writing profitable new business. The group’s internal rate of return (IRR) for the nine month period remained steady at 12%, in line with our benchmark and payback periods were maintained, although the group MCEV margin reduced to 2.1%, as a result of lower risk-free rates in the US. The group’s general insurance combined operating ratio (COR) improved to 97%, ahead of our ‘meet or beat’ target of 98%,” Moss added.

He also said Aviva has continued to grow profitable sales at the same time as maintaining strict cost disciplines.

“Today we have confirmed that, as our transformation programme continues to deliver benefits, the group will deliver £200 million of cost savings and a further £200 million of efficiency savings by the end of 2012. We will continue to focus on both cost and capital efficiency, balanced with increasing the volume of profitable sales. Consultation on the planned closure of Aviva’s final salary staff pension scheme completed at the end of September. Moving staff to a defined contribution scheme from 1 April 2011 will reduce the pension scheme deficit, benefitting Aviva’s net asset value by around £275 million, and will reduce future funding costs by £50 million a year,” the Chief Executive said.

According to him, Aviva is on target to generate £1.5 billion of operational capital by the end of the year. “Looking ahead to 2011, we expect to deliver at least as much again, as we continue to benefit from our combination of life and general insurance. We will generate capital through a combination of attracting more customers and ensuring that they want to stay with us, continuing to manage expenses and as a consequence of improved general insurance profitability,” Moss said.

He said results show that Aviva is continuing to create value for shareholders by capitalising on its strengths. For example, sales through banks in Aviva Europe - where we have more than 50 bank relationships – increased by 20% against the same period last year.

Aviva’s balance sheet also remains strong, with an Insurance Groups’ Directive (IGD) surplus of £3.6 billion at 30 September 2010 (HY10: £3.8 billion), after allowing for the payment of the interim dividend, totalling £0.2 billion (net of scrip).

“We continue to have hedges in place to provide protection against adverse movements in equities and the Euro, and the £1.1 billion of default provisions in our UK annuity book remain untouched.

Aviva’s net asset value on an IFRS basis increased to 424p (HY10: 394p), on a pro forma basis. This includes a 10 pence benefit for the closure of the final salary pension scheme, but does not include the impact of the interim dividend,” Moss said.

In October, Aviva launched the group’s first ever international brand campaign, called ‘You are the Big Picture’, which features Aviva’s most important people –customers and employees. “The new campaign reflects the changes we are making to transform our business for the benefit of our customers,” Moss said.

“We are on track to deliver strong profitable growth and outstanding capital generation for the full year 2010. Looking further ahead, today we are setting out how we will sharpen our focus on our key markets and capitalise on the benefits of running life insurance, general insurance and asset management under one strong global brand,” he added.